Breaking Up is Hard to Do

If you’re Deloitte & Touche, Nortel’s decision to end a 92-year relationship is no doubt painful – particularly in the old pocket book given Nortel paid Deloitte a staggering $81-million in 2005 for auditing and other services. According to the National Post, that accounted for more than one-third of the fees that Deloitte collected from the 100 largest companies on the Toronto Stock Exchange. Of course, no one should really be surprised by the high-profile divorce given Nortel was compelled to restate its financial results going back to 1999.

Advertisements

5 Responses to “Breaking Up is Hard to Do”

  1. Angry Critic Says:

    What happened to the charges against Deloitte, why the total blank silence?

    Here is some interesting reading:

    http://www.cbc.ca/cp/business/050629/b062984.html

    “Another woman asked when former Nortel executives who are alleged to be responsible for the accounting improprieties would be charged, tried and sent to jail.

    Others directed their anger at Nortel’s auditing firm Deloitte & Touche and questioned how they can trust restated audited results released earlier this year.

    Retiring chairman Lynton (Red) Wilson replied that the board was confident that the company and its auditing firm had done everything possible with the information they had available.

    Wilson told shareholders he regretted the troubles that Nortel has undergone since 2000, when its stock price peaked, but he said the accounting problems were due to the actions of senior managers who had betrayed their trust.

    “As a longtime Nortel shareholder, I know personally how difficult and disappointing the past 4 1/2 years have been,” Wilson said. ”

    http://www.newswire.ca/en/releases/archive/March2005/10/c3390.html

    TORONTO, March 10 /CNW/ – Investors who purchased Nortel shares between April 24, 2003 and April 27, 2004 have launched a $3 billion class action suit
    against Nortel Networks and the company’s auditors, Deloitte and Touche The suit also names several of Nortel’s former officers and directors,
    including past president and CEO Frank Dunn, as defendants.

    http://www.newswire.ca/en/releases/archive/December2006/04/c3587.html

    “Nortel has been pleased with the service of Deloitte & Touche and, in particular, with the close collaboration provided in recent years. Deloitte
    helped Nortel overcome significant challenges to ensure that our financial reporting is accurate and up-to-date. We thank them for their service and look
    forward to continued work with them in other capacities going forward,” said Currie. KPMG was also selected as Nortel Networks Limited’s independent auditor
    commencing with fiscal 2007.

    http://www.canada.com/nationalpost/financialpost/story.html?id=756a10e1-0b23-4150-ac56-97748b429d79&k=10806

    One answer is that other auditors are not in a position to do a better job than Deloitte, and might not be willing or able to tackle Nortel, Mr. Mackenzie said.

    if Nortel was to seek a new auditor, it would be faced with another problem — lack of choice. There have been almost constant concerns about the lack of options for firms seeking auditors since Arthur Andersen collapsed in the wake of the Enron Corp. scandal

    Nor would a smaller firm have deep enough pockets to assume Nortel-sized litigation risks. But even if Deloitte were taken off the account, other auditors could be reluctant to take its place, especially after Deloitte gave a “damning” opinion on the state of Nortel’s accounting controls last year as part of its audit, Mr. Salterio said. Nortel has endured “a horrible internal control meltdown,” which makes it a high-risk client for any auditor, he said.

    the audit process at Nortel has “made a laughing stock of the [audit] industry,”

    Nortel said the latest restatement is the result of a thorough review of sales contracts that showed the company was recording revenue in the wrong periods. The company will now be able to record higher revenue in future years.

    There have been no significant changes in accounting standards to force a change in policy. Some observers said yesterday the restatement shows either Deloitte and Nortel still haven’t got the numbers right despite all the hundreds of thousands of billable hours, or the auditors are not able to stand up to Nortel’s management on decisions about accounting treatments.

    A spokesperson for Nortel said yesterday the company does not have any intention of replacing its auditor, while Deloitte said the audit firm considers public discussion of their relationship with Nortel to be inappropriate.

  2. duncan s Says:

    It is worth noting that although Deloitte will miss the business from the Nortel account, the dollar figure quoted is historical and unlikely to have been the future Nortel audit revenue. Nortel has been on record as saying that audit fees over the past few years (due to multiple restatements, Sarbanes-Oxley compliance, and institution of better internal controls) have been running significantly higher than “normal.”

    My best guess would be that going forward Nortel audit revenues would have been

  3. Apple Says:

    How was it possible D&T did not stop Nortel’s wrong accounting on time?
    Because of that alleged fraud which happened on D&T watching Nortel had to settle with shareholders for around $2.5 bill.
    not only that but also Nortel had to pay more in last 3 years for D&T overtime work as well.
    Total of $210 mill in last 3 years!
    I don’t believe NT’s PR about the divorce decision
    ..
    the decision “does not result from any disagreement or dissatisfaction”.
    btw
    Removing $5 bill from accounting books should not be called restatement; it should be called an attempt to cover up the fraud.

  4. NeilMcIntyre.ca » Nortel drops Deloitte for KPMG Says:

    […] Nortel has dropped Deloitte as their auditor, ending a 92 year relationship seemingly without warning. Nortel has been plagued in recent memory by many accounting restatements, for which Deloitte has taken some of the heat for not catching errors. “Fees from Nortel, which ditched Deloitte as its auditor this week, made up more than a third of the total audit and related fees Deloitte has been paid by its biggest Canadian clients in recent years. Deloitte was paid about $81-million by Nortel for audit and related work in 2005, the highest amount received by any Canadian auditor last year. That means the Nortel fees represented 34% of the total fees Deloitte earned from the TSX’s biggest companies in 2005 — the 2004 figure was about 37%.” […]

  5. anonymous Says:

    who does the books for GE and motorola?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: